Hockey to keep tax thresholds - but they're not carbon compo

The Coalition is planning to match Labor's tax cuts and family payments associated with the carbon tax, despite shadow treasurer Joe Hockey declaring all compensation would be wound back.

Mr Hockey said the Coalition remained committed to dumping both the carbon tax and any sweeteners connected to it because consumers would benefit from the reduced household energy prices that would follow.

These sweeteners include a tripling of the tax-free threshold to from $6000 to $18,200, rising to $19,400 in 2014-15, and increases to a slew of household payments.

''Let me be very clear, if there is no carbon tax, there is no need for compensation, because if you don't have a carbon tax, you don't have injury, and by its very design, the carbon tax is meant to cause injury, it's meant to change behaviour, and that's why the government compensates,'' Mr Hockey said.

The shadow treasurer's comments suggested the Coalition was considering going to the September election with a plan to increase taxes. They also appeared to contradict statements by Opposition Leader Tony Abbott who has hinted that tax arrangements similar to Labor's compensation package may continue.

A senior Liberal confirmed the Coalition was working on its own multibillion-dollar tax and welfare plan, which would form the central pillar of its election pitch to the outer suburbs.

Advertisement

The frontbench source, who is close to the Coalition's policy deliberations, revealed it was preparing a comprehensive tax relief policy that would be of the same order of Labor's benefits but without the carbon tax.

He said the Coalition's expenditure review committee (ERC) was working hard to identify savings to fund the measures.

Labor argues the Coalition cannot match its compensation without the revenue from the sale of carbon permits.

But the frontbencher said the government's carbon tax revenue projections were based on ''absolutely heroic'' assumptions about the international price of carbon, which would never be realised.

''We're going to have our own package of tax relief,'' the frontbencher said.

However, in recognition of the tight fiscal situation, he said it was unlikely there would be other big spending promises in the Coalition election manifesto.

''ERC is going well, but it's not easy, there won't be a lot of other initiatives, it's all about our tax and payments package,'' the source said.

As well as appearing at odds with his own leader, Mr Hockey drew fire for playing down the value of Labor's higher tax-free threshold, which he claimed was worth just $3 a year for the typical family.

Treasurer Wayne Swan's office hit back, stating that the assistance package had been designed for lower-income earners and that three-quarters of those households receiving more than $3 were receiving an average of $300 a year.

For some, the tax benefit was as high as $600.

Finance Minister Penny Wong said the bill for retaining the benefits of the carbon tax would be as high as $5 billion a year.